Great Deals Don't Justify Amazon's Irresponsible Behaviour

It is hard not to get hooked by Amazon's perfect execution, impeccable customer service and unbeatable prices. I admit, for a while I did.

Amir Barnea
Amir Barnea is an associate professor of finance at HEC Montréal.

Shutterstock / Julie Clopper

Amazon boxes are part of the view of our cities these days. Often sealed with heavy-duty "Amazon Prime" masking tape, they are carried by customers or delivered to the doorstep of Canadians by an army of couriers. Amazon is something big, and it's getting bigger. The retail giant made its big push to the Canadian market only this past year and now provides an experience similar in service and price to the one offered in the U.S.. Its "Prime" members can receive free deliveries on the same day in Toronto and Vancouver, free one-day deliveries in some other major cities, and free two-day deliveries to most other places.

Amazon's strategy during the past decade was always to invest heavily in capturing market share and worry about net income later. In its most recent earnings report, quarterly revenue stood at US$38.4 billion and net income at only US$800 million. Its profit margin is razor-thin and Amazon is determined — at all cost — to make its website the default option of customers for almost any purchase. The rationale is that once this happens, profit will follow. Investors are impressed, and took its stock price to new highs recently, making Jeff Bezos, Amazon's founder, CEO and largest shareholder, briefly the richest person in the world.

Albin Lohr-Jones/Pool via Bloomberg via Getty ImagesJeffrey Bezos, president and chief executive officer of Amazon.com Inc., listens during a meeting with U.S. President-elect Donald Trump and technology leaders at Trump Tower in New York, U.S., on Wednesday, Dec. 14, 2016.

It is hard not to get hooked by Amazon's perfect execution, impeccable customer service and unbeatable prices. I admit, for a while I did. But having Amazon's ambitions and influence on the way we live must come with social responsibilities. That's where Amazon is failing.

First, is Amazon competing fairly? Amazon's operating margin (operating income/sales) in its North American segment was 2.4 per cent in the last quarter. On its international segment, it was -4.7 per cent. These close-to-zero profit margins have been consistent for a very long time. With its free "subscribe and save" program, which adds additional five-to-20 per cent discount on already low prices, it is pricing out every other player in Canada, including Walmart.

The Competition Bureau defines predatory pricing when: "a firm deliberately setting the price of a product(s) below an appropriate measure of cost ... for a period of time sufficient to eliminate, discipline, or deter entry or expansion of a competitor." The regulator should judge this, but arguably, this is exactly what Amazon is doing.

It must convince us that it is "doing the right thing." Until then, I'm buying at my local neighbourhood stores.

What about its Corporate Social Responsibility (CSR) practices? One would expect from a company that ships about three million packages a day, with boxes, wrapping material, and fleet of polluting courier vehicles to serve as a role model. But no, Amazon is one of very few S&P 500 firms that don't even publish an annual CSR report. If you click on the link "Amazon and our planet" on the Canadian website, you will see that is says: "Page last updated in May 2011." This is probably how much Amazon genuinely cares about the environment. A lot has also been written about how demanding and difficult, to say the least, it is to be an employee with the company and about its offensive monopsony power with respect to its suppliers.

More from Huffpost Canada:

And lastly but importantly, there is something uncomfortable about the fact that as of June, CEO Jeff Bezos had donated a mere one-tenth of one per cent of his wealth to charity. In contrast, some 170 billionaires from all over the world signed "The Giving Pledge," where they committed to donate at least 50 per cent of their wealth. Warren Buffett, Bill Gates, and Mark Zuckerberg went as far as pledging 99 per cent of their wealth to charity.

As Amazon accelerates its penetration to the Canadian market, it would simply be irresponsible and myopic on the part of consumers to focus only on their individual short-term savings and convenience and to ignore Amazon's predatory behaviour, disregard for its environmental footprint and stinginess of its CEO. The burden of the proof is now on Amazon. It must convince us that it is "doing the right thing." Until then, I'm buying at my local neighbourhood stores.